With its share price having close to doubled since Zacks senior energy analyst Sheraz Mian upgraded the stock to a Buy last fall, oil refiner Tesoro (TSO) has even more room to appreciate. Looking into his latest Buy report on the company, we found some reasons why:
Tesoro shares have run up significantly following the acquisition of Shell's Los Angeles refinery and other downstream assets. The acquired assets fit in well with the company's West Coast-focused operating base and provide for meaningful synergy capture and growth opportunities. The acquisition, expected to close towards the end of the current quarter, will be accretive to earnings and cash flows immediately.
Our estimates are being raised to reflect contribution from the Shell refinery and the strong West Coast refining environment. This is the core of our continued positive outlook for Tesoro shares. Our new 2007 and 2008 EPS [earnings per share] estimates are $13.45 and $14.31, up from $10.65 and $11.92 before, respectively.
We have always liked this name and the feeling has only increased with this transaction. We have raised our price objective to $125, which we determine using a 2007 P/E [price-to-earnings] multiple of 9.3x. We believe that Tesoro is better positioned than most of its peers in the current environment given the positive margin outlook for its core West Coast market.
Read the analyst report on TSO